BILL ANALYSIS Ó
AB 1233
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Date of Hearing: April 27, 2015
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Adam Gray, Chair
AB 1233
Levine - As Amended April 15, 2015
SUBJECT: Distilled spirits manufacturers: licenses: sale on
premises tastings
SUMMARY: Would allow a licensed distilled spirits manufacturer
to sell up to 3 bottles of product authorized to be produced or
bottled by or for the licensee to each person at a tasting on
the licensee's premises, as specified.
EXISTING LAW:
1) The enactment of the 21st Amendment to the U.S. Constitution
in 1933 repealed the 18th Amendment and ended the era of
Prohibition. Accordingly, states were granted the authority to
establish alcoholic beverage laws and administrative structures
to regulate the sale and distribution of alcoholic beverages.
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2) Establishes the Department of Alcohol and Beverage Control
(ABC) and grants it exclusive authority to administer the
provisions of the Alcoholic Beverage Control Act (ABC Act) in
accordance with laws enacted by the Legislature. This involves
licensing individuals and businesses associated with the
manufacture, importation and sale of alcoholic beverages in this
state and the collection of license fees or occupation taxes for
this purpose.
3) Grants licensed distilled spirits manufacturers and licensed
brandy manufacturers the privilege to conduct consumer tastings
on their licensed premises and to charge for those tastings, as
defined. Allow distilled spirits manufacturers and brandy
manufacturers to charge individuals for up to six tastings, as
defined. The single tastings of distilled spirits or brandy
shall not be given in the form of a cocktail or a mixed drink.
Existing law also makes it explicit that no distilled spirits
shall be sold or solicited for sale in that portion of the
premises where the distilled tasting is being conducted.
4) Permits an on-sale retail licensee of wine or distilled
spirits to conduct "instructional" consumer tastings on the
licensed retail premise provided the following conditions are
met: a) no more than a quarter ounce of distilled spirits is
offered in one tasting; b) no more than one ounce of wine is
offered in one tasting; and, c) no more than three tastings are
offered to an individual in one day. An instruction may include
the history, nature, values and characteristics of the product
being offered, and the methods of presenting and serving the
product.
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5) Permits a licensed winegrower or brandy manufacturer to be
issued an off-sale general license. Existing law also permits
wineries to sell their products on the premises to consumers and
directly to licensed on-sale and off-sale retailers (e.g.,
restaurants and liquor stores).
6) A licensed beer manufacturer may, at the licensed premises
of production, sell to consumers for consumption off the
premises beer that is produced and bottled by, or produced and
packaged for, that manufacturer. Licensed beer manufacturers
may also exercise any of the following privileges: 1) Sell that
beer to any person holding a license authorizing the sale of
beer; and 2) Sell that beer to consumers for consumption on the
manufacturer's licensed premises or on premises owned by the
manufacturer that are contiguous to the licensed premises and
which are operated by and for the manufacturer.
7) Provides for a brewpub- restaurant license, issued to a bona
fide public eating-place, which authorizes the sale of beer,
wine, and distilled spirits for consumption on the premises and
the sale of beer produced by the brewpub-restaurant licensee for
consumption on the premises. The license also authorizes the
sale of beer produced by the licensed brewpub-restaurant
licensee to a licensed beer and wine wholesaler.
8) Authorizes ABC to issue to the holder of an "off-sale"
retail license an "instructional tasting license" for the
purpose of furnishing tastings of alcoholic beverages to
consumers, subject to certain limitations.
9) Authorizes licensed winegrowers to conduct wine tastings
featuring their products either on or off the winegrower's
premises, as provided for in rules and regulations adopted by
ABC.
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10) Permits, until January 1, 2018, a manufacturer, winegrower,
rectifier, or distiller, distilled spirits manufacturer's agent
or any authorized agent of that person to provide, free of
charge, entertainment, food, and distilled spirits, wine, or
nonalcoholic beverages to consumers over 21 years of age at an
invitation-only event in connection with the sale or
distribution of wine or distilled spirits, as specified.
11) Defines an "on-sale" license as authorizing the sale of all
types of alcoholic beverages: namely, beer, wine and distilled
spirits, for consumption on the premises (such as at a
restaurant or bar).
12) An "off-sale" license authorizes the sale of all types of
alcoholic beverages for consumption off the premises in
original, sealed containers.
FISCAL EFFECT: Unknown
COMMENTS:
Purpose of the bill : According to the author, this bill will
remove the onerous restriction in law that prevents distillers
from selling their products to consumers. Wineries and
breweries were not allowed to do so under original Prohibition
tied-house laws. Over time, the Legislature created various
exemptions from the Tied-house law for beer and wine. These
exemptions have helped small wineries and craft brewers make
some of the finest beer and wine in the world. AB 1233 is a
logical continuation of those efforts and changes in law.
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The author states, the goal of this bill is to allow modest,
limited sales to establish artisanal distiller brands and use
tastings to teach the public about small batch, distilled
spirits products.
By allowing an initial sale at tasting rooms, the public can
take a product with them and share California brands. Once that
relationship is established, the brand can travel with tourists,
as gifts and at gatherings, allowing the small distilleries to
grow. When that next bottle is desired, the consumer will go to
a local retailer and ask for it by name.
According to information provided by the author's office,
currently, there are nearly 50 small craft distilleries across
the state where those of age have the opportunity to sample new
products, in modest quantities, in a responsible setting.
Tastings are limited to not more than six of one-ounce taste
per individual, per day. However, current law prohibits
California distilleries from selling any product other than
fruit-based brandies directly to consumers. Current law allows
fruit based brandies to be sold at their on-site tasting rooms.
AB 1233 would allow limited sales of distilled spirits from all
types of fermentable ingredients, such as grains, potatoes,
sugarcane, molasses and rice, to enable California distilleries
to sell not only brandy but also whiskey, vodka, gin, rum,
liqueurs and other specialty spirits.
The author maintains that a stronger three-tier system that
links local consumers with local producers will emerge. Today,
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40 states allow distillers to sell their products to consumers.
By allowing limited direct sales at tasting rooms, California
brands will grow and retailers will demand them for their
shelves to compete with large, out of state brands.
Background : Existing law, known as the "Tied-house" law,
separates the alcoholic beverage industry into three component
parts, or tiers, of manufacturer (including breweries, wineries
and distilleries), wholesaler, and retailer (both on-sale and
off-sale).
Tied-house refers to a practice in this country prior to
Prohibition and still occurring in England today where a bar or
public house, from whence comes the "house" of tied house, is
tied to the products of a particular manufacturer, either
because the manufacturer owns the house, or the house is
contractually obligated to carry only a particular
manufacturer's products.
The original policy rationale for this body of law was to: (a)
promote the state's interest in an orderly market; (b) prohibit
the vertical integration and dominance by a single producer in
the marketplace; (c) prohibit commercial bribery and protect the
public from predatory marketing practices; and, (d) discourage
and/or prevent the intemperate use of alcoholic beverages.
Generally, other than exceptions granted by the Legislature, the
holder of one type of license is not permitted to do business as
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another type of licensee within the "three-tier" system.
Numerous exceptions to these restrictions have been enacted
through the years in those specific instances where the
Legislature determined that the public's interests were
protected. Generally, the business community is interested in
removing unnecessary business regulations and creating
conditions that facilitate investment and expansion
opportunities for companies that have some degree of ownership
in multiple segments of the industry. However, the Legislature
traditionally does not grant exemptions that favor the products
of the entity seeking the exemption, or exemptions that unfairly
compromise the role of the distributors.
Distilled spirits production is a growing market : According to
the Distilled Spirits Council of the United States, the
distilled spirits industry had steady growth in the United
States in 2014. The Council reported that supplier sales were
up 4% in 2014 and total U.S. volume growth increased 2.2% to 210
million cases. Consumer interest in industry innovations and
premium products from distilled spirits producers of all sizes
contributed to another year of steady growth in 2014.
According to the American Craft Spirits Association, there are
at least 350 craft distilleries in the United States today - a
figure projected to pass 500 in 2015. The craft spirits industry
holds economic development opportunities in tourism,
manufacturing, revitalization, exporting and more. Craft
spirits is a $10.2 billion market and growing fast.
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Recent legislative action outside of California : In 2008,
Washington allowed craft distilleries to conduct on-site tasting
and sales. A craft distillery is authorized to sell product of
its own production for consumption off the premises, up to 2
liters per customer per day.
In 2008, Oregon allowed craft distillers to offer samples of
their products at their distillery or at a separate tasting
room. Additionally, distilleries can apply for a license as a
retail outlet agent to sell bottled products manufactured at the
distillery directly to consumers.
In 2013, Indiana passed legislation that allowed craft
distillers to sell a range of products directly to consumers by
the drink or bottle.
In 2013, Florida passed legislation that allows distilleries to
sell two bottles a year directly to customers. Craft
distilleries are defined as any distillery that makes less than
75,000 gallons a year on-site.
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In 2014, Arizona established a craft-liquor distillery license,
allowing them to sell directly to consumers.
In support : According to the bill's sponsor, California
Artisanal Distillers Guild, this bill will repeal the
prohibition on small craft distilleries selling products other
than fruit based brandies at their on-site tasting rooms. By
allowing the sale of up to three bottles per person at a spirits
tasting in a licensed distillery, will allow distilleries across
California, to sell distilled spirits from all types of
fermentable ingredients, such as grains, potatoes, sugarcane,
molasses and rice. Similar laws for distilleries exist in 40
other states and California currently allows breweries and
wineries to sell all of their beers and wines in closed
containers to visitors of their tasting rooms.
Dry Diggings Distillery writes, "Direct sales will help small
distilleries create a market for our products and grow our
sector of the state's tourism and local "farm to fork" or "field
to bottle" movement. Tasting room sales will increase tax
revenue and help create demand for these craft products as we
compete against large, out of state distillery products for
retail shelf space."
Proponents note that small business need the ability to attract
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consumers and to be able to sell to them directly at the place
of business - not being able to do so does not serve any purpose
of the law nor does it interfere with legitimate business
interests of others.
Proponents further note "Prohibition-era California liquor laws
that hinder small craft distillers from expanding our operations
and growing our business should be repealed. It was not until
January 2014 that we could even offer paid tastings at
distilleries like ours. It's now time to allow us to sell
directly to our customers, even if it is limited to only three
bottles."
In opposition : The California Teamsters Public Affairs Council
writes, "The so called "Tied-house rules" may seem arcane but
they serve the dual purposes of protecting the public and
protecting businesses in the alcohol industry from being
monopolized. When an alcohol manufacturer is able to control
all aspects of the market from the distillery to the consumer,
they can squeeze others out of the market and the result is less
consumer choice. Of course, this also negatively impacts
everyone else in the industry as well. The current regulatory
framework also contributes to stability in the marketplace,
which means job stability. The Teamsters have thousands of
members in the industry and the sort of deregulation that this
bill promotes puts those members' jobs in serious jeopardy.
These are good middle class jobs with good benefits. Our concern
with this bill is that it will ultimately make these jobs
disappear. We've seen it over and over again with
deregulation."
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The Wine and Spirits Wholesalers of California, Inc. writes,
"While the bill is intended to assist 'small' craft distillers
with promotion of their distilled spirits products, allowing
distillers to sell distilled spirts products directly to
consumers raises many public concerns which need to be
addressed: 1) There is no limit on the size of a distiller that
can sell directly to consumers. 2) The bill would change 90
years of post-Prohibition law regulating the direct sale of
distilled spirits at a distillery. 3) Distilled spirits
generally contain at least 4 times the concentration of alcohol
as wine, and 10 times as much as beer. Which is why state
policy has always treated distilled spirits differently than
wine and beer. 4) Many craft distillers are located in urban
areas, unlike most wineries that are located in rural,
agricultural areas. The bill provides no controls over
consumption of the distilled spirits after the purchase. 5)
Current law requires that wholesalers collect the excise taxes
due on distilled spirits sold in the state. The bill makes no
provision for payment of excise taxes by distillers relating to
the direct sale to consumers. 6) The bill would create a number
of new "off-sale" alcoholic beverage premises in urban areas
without giving the public the ability to comment as they have
with other licensees.
The California Council on Alcohol Problems (CCAP) writes "We are
uncomfortable with the idea of distilled spirits (up to three
bottles) being sold by manufacturers at their manufacturing
facility as part of tastings events, opening up new venues for
the sale of alcoholic beverages. As is typical with these
statutorily created, expanded venues for alcohol marketing and
distribution, what begins as a modest new avenue to market
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alcohol expands into ever-increasing ways to distribute and sell
these products. Such is the case with this proposal vis-a-vis
tastings events at the manufacturer's facility, which will --
under AB 1233 -- be accompanied by product sales."
Policy consideration : According to information provided by the
author's office, a 2013 Report titled, "Sonoma County Craft
Beverage Report, stated "At the beginning of the 20th century,
U.S. distilleries numbered around 5,000, twenty years later,
barely a dozen remained. The era of Prohibition not only
devastated the distillery industry of the early 1900s, it
brought about restrictive, federal and local laws that persist
today. The regulations regarding in-store sales and tastings is
one of the more onerous laws for California craft distilleries.
Additionally, unlike beer and wine, spirits may not be made at
home for personal use. Distilleries also face a federal tax
excise tax regardless of their size. Will the number of
distilleries ever return to pre-Prohibition levels? Future
growth will be influenced by how governments revise their
prohibition laws, and ultimately, the pace of consumer demand."
The above statement summarizes the history and reasoning why
distilled spirits and distilled spirits manufacturers have been
treated differently both at the federal and state level as it
pertains to regulation, taxation, selling privileges,
restrictions and general oversight post-Prohibition.
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In addition, the Committee might consider the following policy
questions: 1) Under the current version of the bill, is the sale
of the distilled product conditioned upon a tasting of the
product? It certainly ties the sale to attendance "at a
tasting", which suggests that participation and consumption is
required. As a practical matter, "tastings" at the distillery
are not an "event", but rather occur on an on-going basis while
the tasting room is open, so being "at a tasting" is ambiguous.
2) Should the ABC and local officials have the right to review
and place certain conditions upon the exercise of a licensee to
conduct the direct sale privilege? 3) Would the licensee be
subject to any type of reporting to the ABC due to this expanded
privilege? 4) Should the direct sale privilege be limited, like
other states to "small craft distillers" based on the amount
they produce? 5) Should there be a limit on the amount of
product that can be purchased directly by an individual each
month? 6) Should the bill include an additional permit and/or
license fee to ABC for regulation and enforcement of this new
privilege? Requiring an additional license or permit might
provide an avenue for utilizing "normal" licensing procedures,
which could address concerns, raised in question two. 7) Might
the bill be premature considering that just over a year ago,
legislation (AB 933, Chapter 366, Statutes of 2013) went into
effect that granted licensed distilled spirits and brandy
manufacturers an added privilege to conduct consumer tastings on
their licensed premises and to charge for those tastings? The
author's office stated that the measure was carefully crafted to
give distilled spirits and brandy manufacturers a marketing tool
to educate current and future consumers while taking into
consideration California's three-tier system.
Prior legislation : AB 933 (Skinner and Hall), Chapter 366,
Statutes of 2013. Granted licensed distilled spirits
manufacturers and licensed brandy manufacturers the privilege to
conduct consumer tastings on their licensed premises and to
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charge for those tastings, as defined.
AB 2184 (Hall), Chapter 480, Statutes of 2012. Permits, until
January 1, 2016, the appearance of a person employed or engaged
by an "authorized licensee," as defined, at a promotional event
held at the premises of an off-sale retail licensee for the
purpose of providing autographs under specified conditions.
SB 1068 (Hancock), 2009-10 Session. Would have added a new
provision to the ABC Act authorizing a licensed distiller that
distills fewer than 50,000 gallons of spirits annually to
self-distribute to consumers and licensed retailers
(restaurants, liquor stores). (Held in Senate G.O. Committee at
author's request)
AB 605 (Portantino) Chapter 230, Statutes of 2010. Added
provisions to the ABC Act authorizing the department to issue to
the holder of an "off-sale" retail license an "instructional
tasting license" for the purpose of furnishing tastings of
alcoholic beverages to consumers, subject to certain
limitations.
SB 1022 (Strickland), Chapter 281, Statutes of 2010. Expands an
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existing tied-house exception to enable licensed distilled
spirits "rectifiers" to donate or sell their products to
specified nonprofit entities for the purpose of assisting in
fund-raising efforts.
SB 639 (Calderon) 2009-10 Session. Would have created a new
on-sale tasting license to allow off-sale retail licensees to
furnish tastes of alcoholic beverages to consumers, as
specified. (Died on Senate Appropriations Suspense File)
AB 2293 (De Leon), Chapter 638, Statutes of 2008. Added a new
provision to the ABC Act authorizing distilled spirits
manufacturers and winegrowers to provide their product offerings
directly to consumers (free of charge) during invitation-only
events on premises for which a caterer's permit authorization
has been issued.
SB 995 (Maldonado), 2007-08 Session. Would have permitted
winegrowers, distilled spirits manufacturers, distilled spirits
rectifiers general, or distilled spirits importers general,
out-of-state distilled spirits shippers, and authorized agents
of any of the above to instruct consumers on the premises of an
off-sale licensee regarding wine and distilled spirits,
respectively, as provided. Also, would have allowed the
instruction to include the furnishing of tastings under
specified conditions. (Held in Senate G.O. Committee at
author's request.)
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AB 2613 (Plescia), 2007-08 Session. Would have authorized
winegrowers, distilled spirits manufacturers, as well as
rectifiers, importers and shippers of these beverages to offer
tastings of wine or distilled spirits at off-sale retail
licensed premises (grocery stores and liquor stores) in a
segregated area. Also, would have required verification of age
at entrance to the segregated area and placed limits on tastings
(one-quarter ounce of spirits and one ounce of wine) and limited
tastings to three per person each day. (Held in Assembly
Appropriations Committee)
SB 1548 (Murray), Chapter 670, Statutes of 2006. Authorized
beer manufacturers and wholesalers to offer beer samples (not to
exceed 8 ounces per person, per day) to individuals of legal
drinking age at on-sale retail licensed premises under specified
conditions.
AB 2285 (Valerie Brown), Chapter 248, Statutes of 1998. Allows
on-sale retail licensees to offer limited tastings of wine or
distilled spirits at the licensed establishment.
SB 993 (Burton), Chapter 544, Statutes of 1997. Among other
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things, authorized a licensed distilled spirits manufacturer to
conduct tastings of distilled spirits on the licensed premises
under specified conditions.
SB 113 (Thompson), Chapter 238, Statutes of 1993. Permits a
licensed winegrower to sell wine and brandy to consumers for
consumption off the premises or for consumption at a restaurant
located at the winery or immediately contiguous to it. A
winegrower must produce on the licensed premises not less than
50% of the wines sold to consumers.
REGISTERED SUPPORT / OPPOSITION:
Support
California Artisanal Distillers Guild
Charbay Distillery & Winery
Dry Diggins Distillery
El Dorado Hills Chamber of Commerce
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Sonoma County Distilling Company
Spirit Works Distillery
Ventura Limoncello Company, LLC.
Venus Spirits
3 letters from General Public
Opposition
California Council on Alcohol Problems
California Teamsters Public Affairs Council
Wine and Spirits Wholesalers of California, Inc.
Analysis Prepared by:Eric Johnson / G.O. / (916) 319-2531
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